Mandating Social Security for All Public Employees: Pros and Cons

Today, about one-quarter of all state and local government workers (5.5 million
persons) are not covered by Social Security. Although they are only a minority of state
and local government workers, they represent 85 percent of all U.S. workers outside the
Social Security system, and are the single largest occupational group without full Social
Security coverage. Many current reform proposals include provisions mandating that all new
state and local government hires participate in the system. The following is a list of
frequently heard arguments supporting and opposing such a mandate.

Pros

Unlike many pension plans, Social Security is portable (that is, benefits cannot be lost
because of job change).

Social Security always includes security for dependents. State and local employees often
receive a reduction in benefits if they opt to include survivors' benefits in their
policies.

Social Security coverage of all public employees would eventually eliminate the
government pension offset. The government pension offset applies to moderate and higher
income earners who are entitled to both Social Security benefits from covered employment
and a government pension from noncovered employment. The offset is designed to prevent
these earners from benefiting from Social Security's redistributive benefit formula.

Including all public employees in Social Security would reduce the program's long-term
financial shortfall by 10 percent over 75 years, according to the Social Security
Administration (SSA). Using data from the 1998 Social Security Board of Trustees' report,
the General Accounting Office estimates that mandatory coverage of state and local
government employees would extend the Social Security program's solvency by about two
years.

Including all public employees would increase participation in an important national
program.

Program administration would be simplified in the long run. In December 1996, SSA's
Office of the Inspector General reported that Social Security provisions related to
coverage of state and local employees are complex and difficult to administer.

Cons

Social Security is a "one-size-fits-all" program. Many of the current public
employee programs are tailored to meet the needs of specific groups.

Adding public safety workers (such as firemen and policemen) into Social Security might
increase the cost since these workers are more likely than the general population to
receive Survivors and Disability Insurance.

Unlike some state and local disability plans, disability benefits from Social Security
are not available if individuals are able to work in some profession. Consider the example
of a 50-year-old firefighter who is covered by Social Security: He or she sustains an
injury and is no longer able to work as a firefighter. The injury is such that he or she
is able to work but only at a lower-paid profession. Social Security's disability
insurance program would not provide benefits and would essentially require the firefighter
to change to a lower-paid profession. Moreover, since Old-Age, Survivors, and Disability
Insurance (OASDI) is calculated using a worker's 35 years of highest earnings, his or her
retirement benefits under Social Security in many cases would be less than would be
received under a state or local pension system.

For the next decade or so, Social Security will be accumulating payroll tax reserves in
its trust funds. These reserves are invested in special government securities and loaned
to other parts of the government to finance expenditures -- a practice that some object
to. Requiring new state and local workers to pay into Social Security would enable the
federal government to borrow additional money from these "trust funds."

Under current law, the Social Security trust fund can be invested only in U.S. Treasury
bonds. State and local governments are able to invest their pension plan assets in a
greater diversity of investment vehicles, thereby possibly achieving a greater rate of
return on these assets.

Inclusion of public-sector employees in Social Security would increase public-sector
employers' tax burden. To make these increased tax payments, public-sector employers would
be forced to hire fewer workers, reduce employees' wage increases, reduce cost-of-living
increases for current retirees, and/or make cuts in other benefit areas such as health
care.

Some claim that state and local governments face morale problems with new hires who are
required to be included in Social Security.

For additional information on Social Security, go to the following link on EBRI's Web
page: http://www.ebri.org/SSProject/sslisting.htm

For more information, contact Ken McDonnell, (202) 775-6342, or Kelly Olsen (202)
775-6330, or see EBRI's Web site at www.ebri.org.

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